At Shawbrook, we want you to have all the information you need to make the right decision. In this guide, we’ll help you understand everything there is to know about ISAs, including the key features of an ISA and the types Shawbrook and other providers offer.
What is an ISA?
An ISA is the shortened name for an ‘individual savings account’.
There are five main types of ISA available on the market — cash ISAs, stocks and shares ISAs, innovative finance ISAs, lifetime ISAs, and junior ISAs. At Shawbrook, we exclusively offer cash ISAs — in the form of fixed rate cash ISA bonds and easy access cash ISA Accounts — but we’ll explain all the types in more detail in the following guide.
One of the benefits of ISAs is that they offer a tax-efficient way to save. Every tax year, there is an allowance that allows you to save or invest a certain amount tax-free.
What is the ISA allowance for 2023/2024?
The ISA allowance for the current tax year (2023/2024) is £20,000 per person.
The annual allowance can be split across cash and stocks and shares, or used in full with one account.
This allowance is reset every year, but it has remained the same since 2017/2018 when it increased from £15,240.
How do ISAs work?
ISAs allow you to make money on your savings without paying tax.
In 2023/2024, you can invest £20,000 into a new or existing ISA and you won’t pay income tax or capital gains tax on the interest you earn — for this year, and future years.
Those who invest in ISAs every year (and do not exceed the maximum) can earn considerable amounts of interest tax-free.
You cannot catch up on previously unused allowances so if you do not invest £20,000 by 5th April 2024 (the end of the current tax year), this allowance is lost.
What are my ISA options with Shawbrook?
Shawbrook offers one of the main types of ISA — cash ISAs. We offer these as fixed rate or easy access.
- Shawbrook’s fixed rate cash ISA bonds are available in terms from 1 to 7 years
- They offer a competitive, guaranteed rate
- You can make withdrawals before maturity but this will be subject to a loss of interest (known as the early exit charge)
- Shawbrook’s easy access cash ISA accounts have no set terms, so you can invest for however long you choose
- Because of their flexibility, the interest rate is variable but still competitive
- You have instant access to your money and can make unlimited fee-free withdrawals (subject to a minimum withdrawal amount)
- You can open either by investing £1,000. Both options allow you to choose whether you want interest paid monthly or annually.
For more information about Shawbrook’s cash ISAs and how you can open an account, visit our cash ISAs page.
Other types of ISA
Although Shawbrook exclusively offers cash ISAs, there are other types available from other providers:
Stocks and shares ISAs
Also known as an ‘investment ISA’, stocks and shares ISAs involve investing your money into assets such as shares, bonds, and property.
With a stocks and shares ISA, your capital (meaning the money you invest) is at risk because there are no guarantees your investments will make money. It is possible to exit the ISA with less money than you initially invested. However, investing in this type of ISA longer-term will increase the likelihood of making a positive return.
Innovative finance ISAs
Innovative finance ISAs enable you to become a lender via a peer-to-peer lending platform. You loan money to an individual or business, and then you receive a fixed amount of interest as payment.
These can offer attractive levels of interest, but there are greater risks. If a borrower defaults on their loan and cannot pay you back, you may lose all of the money you invested. The Financial Services Compensation Scheme does not protect Innovative Finance ISAs, so you must be prepared to accept this level of risk.
Lifetime ISAs, also known as LISAs, are for saving to become a first-time buyer or retiring.
With lifetime ISAs, you receive a 25% bonus on any money you invest. So, for every £4 you invest, you’ll receive an extra £1 — up to a maximum of £1,000 per tax year. You can only place £4,000 each year in this type of ISA.
You can only open an account between 18 - 39, and you can only withdraw funds to purchase your first home (with a mortgage) or once you turn 60 (or if you are terminally ill, depending on your specific policy).
Junior ISAs, also known as JISAs, were introduced by the government in 2011 to replace Child Trust Funds.
They are available as cash ISAs and stocks and shares ISAs. Once you open a junior ISA, it is owned by the child and nobody else. Money can only be accessed when the child reaches 18 when the account automatically becomes an adult ISA.
Junior ISAs have a smaller tax allowance than standard adult ISAs. The 2023/2024 tax year allows up to £9,000 to be contributed for each child.
AER stands for Annual Equivalent Rate and illustrates the interest rate if it was paid and compounded each year. We quote the AER on all of our accounts so that you can compare our products with those of other banks. GROSS is the interest rate without the deduction of income tax. This is the interest rate paid on your account. Terms & Conditions for Personal Accounts
Financial Services Compensation Scheme (FSCS)
Your eligible deposits with Shawbrook Bank Limited are protected up to a total of £85,000 by the Financial Services Compensation Scheme, the UK's deposit guarantee scheme. Joint accounts are protected up to £170,000. Any deposits you hold above the limit are unlikely to be covered. For further information visit www.fscs.org.uk